Elan Goes On A Spending Spree

Flush with money after having sold most of its assets, the Irish drug company Elan is remaking itself through acquisitions and investments. It’s a gutsy undertaking, and it could be thwarted by another company seeking to buy Elan for its cash and future royalties.

Under CEO G. Kelly Martin, Elan has been laying off staff, selling businesses, and paying down debt since 2009. Martin, a former Merrill Lynch executive who is known as a deal maker, had announced plans to leave the company in 2012, but Elan has kept him at the helm. And his stream of deals continues.

The latest moves, announced last week, are to acquire the Austrian firm AOP Orphan Pharmaceuticals and an interest in NewBridge Pharmaceuticals, a Dubai-based specialty pharma company. Elan also formed Speranza Therapeutics to continue development of a late-stage neurology drug. In mid-May, Elan paid Theravance $1.0 billion for a 21% stake in royalties from four drug programs with GlaxoSmithKline.

“There are a lot of pieces to the puzzle,” Martin told analysts during a conference call last week. The consistent ideas, however, are to spread risk, limit costs, increase income, and diversify scientifically, therapeutically, and geographically. Elan enjoys a lot of flexibility at the moment, Martin said: “We are not constrained by legacy infrastructure nor associated costs.”

Most of the cash Elan is spending comes from the sale of its rights to the multiple sclerosis drug Tysabri. That went to Biogen Idec in February for $3.25 billion plus future royalties. Earlier, in 2010, Elan sold its drug technology business to Alkermes in a cash-and-stock deal worth about $1 billion. And in 2009, Elan sold its Alz­heimer’s drug program to Johnson & Johnson for $885 million, although J&J has dropped a version of the lead product.

With Tysabri royalties as Elan’s main asset, Martin has been resisting an attempted takeover by Royalty Pharma, which began making unsolicited bids earlier this year. Last week, it upped its offer to $6.4 million and harshly criticized Elan’s recent moves as “pursued in haste.” Royalty has threatened to withdraw its bid if shareholders approve any of the transactions. Elan’s board has rejected the offer. Steven Silver, an analyst at Standard & Poor’s, believes a deal is unlikely unless Royalty raises its bid again.